COMPETITION AND RATCHET HYPOTHESIS: HOW SAFE ARE MANUFACTURING COMPANIES IN SUB-SAHARAN AFRICA?

Authors

  • Olusola Enitan Olowofela Department of Banking & Finance, OlabisiOnabanjo University, Ago-Iwoye, Ogun State, Nigeria
  • Akanbi M. A Tonade Department of Accounting, Crescent University Abeokuta, Ogun State, Nigeria
  • Wasiu Sanyaolu Department of Accounting, Crescent University Abeokuta, Ogun State, Nigeria

DOI:

https://doi.org/10.32890/mmj2021.25.3

Keywords:

Ratcheting hypothesis, ratchet effects, information asymmetry, ex-post competition, Sub-Saharan Africa

Abstract

This study applied the conventional ratcheting notion that managers (agents) chose to restrict their performance because they anticipated that firms (principals) would respond to higher performance levels by raising targets or by cutting pay in a piece-rate labour environment. A cross-sectional panel model was developed to subject this baseline notion of ratcheting hypothesis to multi-period and ex-post competitive labour market environment, bearing in mind that there was information asymmetry to both parties. It was observed, as predicted by the theoretical model that there would be substantial ratchet effects in the absence of competition. However, when subjected to ex-post competition, the ratchet effects were reduced, regardless of whether market conditions favoured the firms or the managers and thereby making the manufacturing companies in Sub-Saharan Africa safer than when they were exposed to ratcheting in its conventional form.

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Author Biographies

Akanbi M. A Tonade, Department of Accounting, Crescent University Abeokuta, Ogun State, Nigeria

Department of Accounting

Wasiu Sanyaolu, Department of Accounting, Crescent University Abeokuta, Ogun State, Nigeria

Department of Accounting

Additional Files

Published

09-07-2021

How to Cite

Olowofela, O. E., Tonade, A. M. A., & Sanyaolu, W. (2021). COMPETITION AND RATCHET HYPOTHESIS: HOW SAFE ARE MANUFACTURING COMPANIES IN SUB-SAHARAN AFRICA?. Malaysian Management Journal, 25, 49–72. https://doi.org/10.32890/mmj2021.25.3